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Another View: Appelate court dishes up new flavor of tort

By Joseph J. Petrillo

Jul 27, 2005

Joseph J. Petrillo

This country hasn't had a king since George III. However, the federal government continues to benefit from the legal maxim, 'The king can do no wrong.' We call it sovereign immunity. Basically, this means that you can't sue the government unless a statute explicitly says so.

Of course, it is possible to sue the government under several laws enacted by Congress. One of these is the Federal Tort Claims Act. But it's a Swiss-cheese statute, with more exceptions than coverage. You may have a case if the postman runs over your cocker spaniel, but the act hasn't been of much use to wronged businesses.

A recent decision by the influential Court of Appeals for the District of Columbia Circuit might change this, in a way that helps IT companies.

The case, Jerome Stevens Pharmaceuticals vs. FDA, arose from government efforts to control a drug long used to treat thyroid conditions. The Food and Drug Administration required manufacturers to apply for and obtain its approval to continue to sell the drug.

The plaintiff, one of the drug's manufacturers, was the first company to get FDA approval, on Aug. 21, 2000. The next day, the FDA posted on its Web site secret details about the plaintiff's manufacturing processes. This information, which came from the plaintiff's application, was submitted in confidence. The posting told how the plaintiff combined its ingredients, and in what order, to achieve its successful results.

The plaintiff complained, but the information stayed on the government Web site for five months. Adding insult to injury, the FDA extended the deadline for the plaintiff's competitors to get approved, so they could continue to compete in the interim.

So the plaintiff sued the FDA under the Federal Tort Claims Act. The trial court dismissed the suit, and an appeal followed.

The appellate court gave no comfort on the plaintiff's claim that FDA had injured it by extending the deadline for approval. This decision fell squarely under the law's exception for discretionary functions.

However, the plaintiff fared better on the disclosure of its confidential manufacturing processes. The law specifically prohibits the government from disclosing trade secrets; actually, it's a crime. So the discretionary act exception didn't apply.

The trial court, however, had looked at the damages listed in the initial claim filed with the FDA. These seemed to result, not from the improper disclosure, but from the deadline extension. To the trial court, that meant the suit was barred as a discretionary act, and for another reason. The act also precludes a suit on several intentional torts, including interference with contract rights.

The appellate court, however, said that this wasn't the right way to look at the situation. Disclosure of the plaintiff's trade secrets was a wrong, separate and apart from extending the deadline for approval. At trial, the plaintiff would still have to prove damages resulting from the improper disclosure, but it should have a chance to do so.

The court in Jerome Stevens Pharmaceuticals referred to another appellate decision in which the government induced a company to disclose the identity of its supplier in confidence, and then told a competitor. That suit, also for misappropriation of trade secrets, also was permitted to proceed under the Tort Claims Act.

Trade secrets are the lifeblood of technology companies. If the government reveals them improperly, it's good to know there may be a way to get some relief.

Joseph J. Petrillo is a lawyer with the Washington law firm of Petrillo & Powell. E-mail him at jp@petrillopowell.com.